Reference Number:
No. 115-96

IMMEDIATE RELEASE

Secretary of Defense
William J. Perry

Introduction to
the Annual Report to Congress

A DEFENSE STRATEGY
FOR THE POST-COLD WAR WORLD

The Dangers of the
Post-Cold War World

Contrary to the
hopes of many and predictions of some, the end of the Cold War did not
bring an end to international conflict. The most daunting threats to
our national security that we faced during the Cold War have gone away,
but they have been replaced with new dangers.

During the Cold
War, we faced the threat of nuclear holocaust; today, we face the dangers
attendant to the proliferation of weapons of mass destruction. Nuclear
weapons in the hands of rogue nations or terrorists are especially dangerous
because, unlike the nuclear powers during the Cold War, they might not
be deterred by the threat of retaliation.

During the Cold
War, we faced the threat of Warsaw Pact forces charging through the
Fulda Gap and driving for the English Channel; today, we face the dangers
attendant to the instability in Central and Eastern Europe resulting
from the painful transition to democracy and market economies now underway
there. This instability could lead to civil wars or even the reemergence
of totalitarian regimes hostile to the West.

During the Cold
War, we faced the threat of the Soviet Union using third world nations
as proxies in the Cold War confrontation; today, we face the dangers
arising from an explosion of local and regional conflicts, unrelated
to Cold War ideology, but rooted in deep-seated ethnic and religious
hatreds and frequently resulting in horrible suffering. These conflicts
do not directly threaten the survival of the United States, but they
can threaten our allies and our vital interests, particularly if the
regional aggressors possess weapons of mass destruction.

The new post-Cold
War dangers make the task of protecting America's national security
different and in some ways more complex than it was during the Cold
War. Our task of planning force structure is more complex than when
we had a single, overriding threat. Previously, our force structure
was planned to deter a global war with the Soviet Union, which we considered
a threat to our very survival as a nation. All other threats, including
regional threats, were considered lesser-but-included cases. The forces
we maintained to counter the Soviet threat were assumed to be capable
of dealing with any of these lesser challenges. Today, the threat of
global conflict is greatly diminished, but the danger of regional conflict
is neither lesser nor included and has therefore required us to take
this danger explicitly into account in structuring our forces. These
risks are especially worrisome because many of the likely aggressor
nations possess weapons of mass destruction. Additionally, our defense
planning must provide a hedge for the possibility of a reemergence at
some future time of the threat of global conflict.

Also, our task
of building alliances and coalitions is more complex in the absence
of a global threat. With the collapse of the Soviet Union and the dissolution
of the Warsaw Pact, the raison d'être of NATO, for example,had
to be reconsidered from first principles in order to relate its missions
to the new dangers. Also, new coalitions and partnerships needed to
be formed with the newly emerging democratic countries. In building
such international coalitions, we understand that the United States
is the only country with truly global interests and a full range of
global assets -- military, economic, and political. Thus, we are the
natural leader of the international community. However, even the United
States cannot achieve its goals without the active assistance of other
nations. No state can act unilaterally and expect to fully address threats
to its interests, particularly those that are transnational in character.

Thus the new post-Cold
War security environment requires a significant evolution in our strategy
for managing conflict, and it requires new and innovative defense programs
and management philosophies to implement that strategy.

MANAGING POST-COLD
WAR DANGERS: PREVENT, DETER, AND DEFEAT

Today, our policy
for managing post-Cold War dangers to our security rests on three basic
lines of defense. The first line of defense is to prevent threats from
emerging; the second is to deter threats that do emerge; and the third,
if prevention and deterrence fail, is to defeat the threat to our security
by using military force. A renewed emphasis on the first line of defense
--preventive defense -- is appropriate in dealing with the post-Cold
War dangers and is a significant departure from our Cold War defense
policies, where the primary emphasis was on deterrence.

Preventive Defense

During World War
II, all of America's defense resources were dedicated to defeating the
threat posed by Japan and Germany and their allies. That war ended with
a demonstration of the incredibly destructive power of atomic weapons.
Thus, when the Cold War began, the fundamental predicate of our defense
strategy was that fighting a nuclear war was an unacceptable proposition
-- unacceptable from a military as well as a moral standpoint. So we
formulated a strategy of deterrence -- a logical response to the single
overarching threat we faced during that era: an expansionist Soviet
Union heavily armed with nuclear and conventional weapons. This strategy
meant that the primary responsibility of previous Secretaries of Defense
was making sure that we had adequate forces -- both nuclear and conventional
-- to provide unambiguous deterrence.

Today, we continue
to deter potential adversaries by maintaining the best military forces
in the world. But in the post-Cold War era, the Secretary of Defense
and the Department also devote significant efforts to working on preventive
defense. Preventive defense seeks to keep potential dangers to our security
from becoming full-blown threats. It is perhaps our most important tool
for protecting American interests from the special dangers that characterize
the post-Cold War era. When successful, preventive defense precludes
the need to deter or fight a war.

Preventive defense
is nothing new -- it has been a central idea of military strategists
for over two thousand years. Indeed, it has been an important strand
in United States defense policy that has been used before with notable
success. After World War II, the United States and its allies undertook
significant efforts to prevent a future war by holding out a hand of
reconciliation and economic assistance to our former enemies, Japan
and Germany. These efforts were an outstanding success, especially the
Marshall Plan in Europe. The economies of Japan and Western Europe rebounded,
democracy grew deep roots, and our military cooperation and strategic
alliances flourished. But Joseph Stalin turned down the Marshall Plan
for the Soviet Union and the Eastern European countries that he dominated,
and our preventive efforts with the Soviet Union failed.

Instead, the Cold
War ensued, and for more than 40 years the world faced the threat of
global war and even nuclear holocaust. Having failed to prevent the
conditions for conflict, the United States concentrated on the second
line of defense -- deterrence. Over the next 40-plus years, deterrence
worked, and World War III was averted. Finally, largely as a result
of fundamental flaws in its political and economic system, the Soviet
Union collapsed, and many of the New Independent States sought to establish
democratic governments and free-market systems. The outcome of that
unprecedented transformation is still uncertain, but today the threat

of worldwide nuclear
conflict has receded, former Warsaw Pact nations are seeking to join
NATO, and Russia and the United States are cooperating in both economic
and security programs.

Clearly, deterrence
and warfighting capability still have to remain central to America's
post-Cold War security strategy, but they cannot be our only approaches
to dealing with the threats to our security. Instead, the dangers facing
us today point us towards a greater role for preventive defense measures.
Just as preventive defense measures helped shape our security environment
following World War II, preventive measures can help us deal with post-Cold
War dangers. Indeed, the end of the Cold War allows us to build on the
types of preventive measures successfully introduced by George Marshall
in Western Europe, and extend them to all of Europe and the Asia-Pacific
region.

· Working cooperatively
with Russia, Ukraine, Kazakstan, and Belarus to reduce the nuclear legacy
of the former Soviet Union and to improve the safety of residual weapons.

· Establishing
programs to limit the proliferation of weapons of mass destruction.

· Encouraging
newly independent and newly democratic nations to restructure their
defense establishments to emphasize civilian control of their military,
transparency in their defense programs, and confidence-building measures
with their neighbors.

Investing in these
programs today, which my predecessor Les Aspin aptly dubbed"defense
by other means," saves us both blood and treasure tomorrow.

Proliferation is
a prime example. The possession of nuclear or other weapons of mass
destruction by a potential aggressor not only increases the potential
lethality of any regional conflict, but the mere possession of the weapons
by the potential aggressor increases the chances of conflict arising
in the first place. In other words, it is not just that a nuclear-armed
Iraq or North Korea would be a more deadly adversary in a war -- it
is that with nuclear weapons they are likely to be harder to deter and
more likely to coerce their neighbors or start a war in the first place.
The Framework Agreement with North Korea is a prime example of our counterproliferation
program at work. The dangerous North Korean nuclear program has been
frozen since October 1994, when the Framework Agreement was signed.

Another example of
preventive defense is our Cooperative Threat Reduction,often
referred to as the Nunn-Lugar Program. Under this program, we have assisted
the nuclear states of the former Soviet Union to dismantle thousands
of nuclear warheads and destroy hundreds of launchers and silos.

Reducing the nuclear
threat to the United States and stopping proliferation are only the
most dramatic examples of why prevention is so important to our security.
This Annual Defense Report describes in detail the programs we have
initiated to strengthen our preventive defense, most notably the Partnership
for Peace.

Deterrence

No matter how hard
we work on preventive defense, we cannot be sure that we will always
be successful in preventing new threats from developing. That is why
we must deter threats to our security, should they emerge. The risk
of global conflict today is greatly reduced from the time of the Cold
War, but as long as nuclear weapons still exist, some risk of global
conflict remains. The United States, therefore, retains a small but
highly effective nuclear force as a deterrent. These forces (as well
as those of Russia) have been reduced significantly, consistent with
the START I Treaty,and will be further reduced when Russia ratifies
the START II Treaty.

Similarly, to deter
regional conflict, we must maintain strong, ready,forward-deployed,
conventionally-armed forces; make their presence felt; and demonstrate
the will to use them. While the diminished threat of global conflict
has allowed us to reduce U.S. force structure accordingly, the increased
risk of regional conflict places sharp limits on how far those reductions
can go. Today, the size and composition of American military forces,
consistent with the Bottom-Up Review conducted in 1993, are based on
the need to deter and, if necessary, fight and win, in concert with
regional allies, two major regional conflicts nearly simultaneously.
The guiding principle is that the United States will fight to win, and
to win decisively,quickly, and with minimum casualties.

This principle
requires us to maintain a force structure today of about 1.5 million
active duty personnel and 900,000 reserve personnel. These forces are
organized into 10 active Army divisions and 15 Army National Guard enhanced
readiness brigades; 20 Air Force wings (including 7 reserve wings);
360 Navy ships, including 12 aircraft carriers; and 4 Marine divisions
(including 1 reserve division). Equally important to the size of the
force is the requirement to maintain a commanding overseas presence,
including 100,000 troops in Europe and about the same number in the
Pacific, all in a high state of readiness. Our overseas presence not
only deters aggression, it also improves coalition effectiveness in
the event deterrence fails, demonstrates U.S. security commitments,
provides initial crisis response capability, and underwrites regional
stability. Strong deterrence also requires us to maintain prepositioned
equipment in the Persian Gulf, the Indian Ocean, Korea, and Europe and
carrier task forces and Marine Expeditionary Units afloat, able to move
quickly to any crisis point. And finally, it requires that we keep our
forces in the United States in a high state of readiness, and that we
have the lift capability to transport them and their equipment rapidly
to distant theaters. Having the capability to deploy forces quickly
to a crisis decreases the likelihood that they will actually have to
be used and increases their chances for success if force is necessary.
Our planning involves the extensive use of well-trained Reserve Component
forces. Fifteen Army National Guard brigades and many combat support
reserve units will be maintained at a high readiness level to allow
their use at early stages in military operations. The rest are intended
to be used as follow-on forces available for later deployment in longer-term
contingencies.

Those are the requirements
that go with the ability to fight and win, in concert with regional
allies, two nearly simultaneous major regional conflicts. U.S. forces
today meet these requirements. While being able to fight and win is
essential, that ability alone cannot deter conflict. Deterrence stems
from military capability coupled with political will, both real and
perceived;credibility is as important to deterrence as military capability.
Deterrence of regional conflict failed, for example, in 1950 when North
Korea doubted American political will. Some World War II veterans had
to turn around and return to the Far East to reassert that political
will, at a very high price. Today, American forces in the region serve
as a visible reminder of our willingness and capability to help defend
our South Korean allies.

In 1990, deterrence
of regional conflict failed again when Iraq doubted our political will
to defend Kuwait and Saudi Arabia. We demonstrated that will through
a costly but highly successful war to evict Iraqi forces from Kuwait.
In contrast, deterrence succeeded in October 1994 when Iraq moved forces
down to the Kuwaiti border a second time. This time, the United States
demonstrated political will by rapidly deploying additional U.S. military
forces to the Gulf. Within a few days after the Iraqi forces had moved
to the Kuwaiti border, we had deployed 200 fighter aircraft, an armored
brigade, a Marine Expeditionary Unit, and a carrier battle group to
the theater. These forces created in a few days a presence that took
many weeks to assemble in 1990. Faced with that presence and the lessons
of Operation Desert Storm, Saddam Hussein sent his brigades back to
their barracks. We achieved deterrence through the capability to rapidly
build up a highly capable force, coupled with the credible political
will to use that force.

Defending U.S. Interests
Through Use of Military Force

Deterrence can
sometimes fail, however, particularly against an irrational or desperate
adversary, so the United States must be prepared to actually use military
force. Use of force is the method of last resort for defending our national
interests and requires a careful balancing of those interests against
the risks and costs involved. The key criteria are whether the risks
at stake are vital, important, or humanitarian.

If prevention and
deterrence fail, vital U.S. interests can be at risk when the United
States or an ally is threatened by conventional military force, by economic
strangulation, or by the threat of weapons of mass destruction. These
threats to vital interests are most likely to arise in a regional conflict
and,by definition, may require military intervention.

In contrast, military
intervention in ethnic conflicts or civil wars, where we have important,
but rarely vital, interests at stake, requires the balancing of those
interests against the risks and costs involved. In general, any U.S.
intervention will be undertaken only after thorough consideration of
the following critical factors: whether the intervention advances U.S.
interests;whether the intervention is likely to accomplish U.S. objectives;
whether the risks and costs are commensurate with the U.S. interests
at stake; and whether all other means of achieving U.S. objectives have
been exhausted. The United States chose not to intervene as a ground
combatant in the war in Bosnia and Herzegovina because the risks and
costs were too high when weighed against our interests. This decision
was made by two successive administrations for essentially the same
reasons. However, after successful American diplomacy and NATO military
force reshaped the situation and the risks, we made the decision to
participate, not as a combatant, but in the NATO peace implementation
force.

The bottom line
is that the United States is a global power with global interests, and
as President Clinton has said, "Problems that start beyond our borders
can quickly become problems within them." American leadership, global
presence, and strong armed forces can help keep localized problems from
becoming our problems, and protect us if they do. At the same time,
there are limits to what the United States and its forces can or must
do about problems around the globe. As the President said:

"America cannot
and must not be the world's policeman. We cannot stop war for all time,
but we can stop some wars. We cannot save all women and children,but
we can save many of them. We can't do everything, but we must do what
we can. There are times and places where our leadership can mean the
difference between peace and war, and where we can defend our fundamental
values as a people and serve our most basic, strategic interests."

Finally, in some
instances, the United States may act out of humanitarian concern, even
in the absence of a direct threat to U.S. national interests. Agencies
and programs other than the U.S. armed forces are generally the best
tools for addressing humanitarian crises, but military forces may be
appropriate in certain, specific situations, such as when:

· A humanitarian
crisis dwarfs the ability of civilian agencies to respond.

· The need
for relief is urgent, and only the military can jump-start a response.

· The response
requires resources unique to the military.

· The risk
to American service members is minimal.

A good case in
point was America's humanitarian intervention in Rwanda in the summer
of 1994 to stop the cholera epidemic, which was killing 5,000 Rwandans
a day. Only the U.S. military had the ability to rapidly initiate the
humanitarian effort to bring clean water, food, and medicine to Tutu
refugees who had fled from Rwanda in the wake of a catastrophic tribal
conflict, and U.S. forces carried out their mission successfully, at
little cost, with little risk, and then quickly withdrew.

IMPLEMENTING OUR
PREVENT, DETER, AND DEFEAT STRATEGY

Implementing our
defense strategy involves literally hundreds of programs. Their details
can be found in the sections which follow this introduction. Highlighted
below, however, are some of the key ways that we are implementing our
approach of prevent, deter, and defeat.

Reducing the Danger
of Weapons of Mass Destruction

During the Cold
War, the Soviet nuclear physicist Andrei Sakharov said that preventing
a nuclear holocaust must be the "absolute priority" of mankind. This
is still true. Today, a primary means for accomplishing this goal is
the continued dismantlement of nuclear warheads, bombers, and ballistic
missile launchers. The touchstone of our preventive activities in this
area is the Cooperative Threat Reduction program, which helps expedite
the START I Treaty reductions in the states of the former Soviet Union.
This program contributes to some remarkable accomplishments: over 4,000
nuclear warheads and more than 700 bombers and ballistic missile launchers
dismantled; a nuclear-free Kazakstan; a Ukraine and Belarus on the way
to becoming nuclear free; and successful removal of nuclear material
from Kazakstan through Project Sapphire.

It is also vitally
important that we prevent potential regional conflicts from assuming
a nuclear aspect. That is why we have worked hard to help implement
the framework agreement which has frozen North Korea's dangerous nuclear
program and, when fully implemented, will eliminate the program altogether.
Efforts to reduce the nuclear threat also include sanctions on Iraq
and Iran and the indefinite extension without conditions of the historic
Nuclear Non-Proliferation Treaty. Such diplomatic measures do not stand
in isolation-- they are an integral and crucial part of the U.S. approach
to preventing conflict.

Hedging Against
Potential Future Threats

Despite our best
efforts to reduce the danger of weapons of mass destruction,it is still
possible that America -- and our forces and allies -- could again be
threatened by these terrible weapons. That is why it is important for
the United States to maintain a small but effective nuclear force. This
deterrent hedge is not incompatible with significant reductions in American
nuclear forces, nor is it incompatible with American support for the
Nuclear Non-Proliferation Treaty and a comprehensive ban on nuclear
testing. This nuclear hedge strategy is complemented by a program to
develop a ballistic missile defense system that could be deployed to
protect the continental United States from limited attacks, should a
strategic threat to our nation arise from intercontinental ballistic
missiles in the hands of hostile rogue states.

Another way we
hedge against potential future threats is by maintaining selected critical
and irreplaceable elements of the defense industrial base,such as shipyards
that build nuclear submarines. With the end of the Cold War and the
defense down sizing, the need for large numbers of major new ships,aircraft,
and armored vehicles has declined significantly. Allowing these defense-unique
production facilities to shut down or disappear completely,however,
would curtail the nation's ability to modernize or prepare for new threats
down the road. Therefore, the Department will selectively procure certain
major systems -- such as the Navy's Seawolf fast-attack submarine --
in limited quantities to keep their production capabilities warm, until
we are ready to build the next generation nuclear submarines.

Maintaining Strong
Alliances and Reaching Out to Old Rivals and New States

Maintaining strong
alliances with our traditional allies in Europe and the Asia-Pacific,
maintaining constructive relations with Russia and China, and reaching
out to new democracies and friends are key elements of our defense posture.

Europe

In Europe, NATO
is the foundation of our security strategy, and we continue to play
a leadership role within NATO. There are those who allege that NATO
is now obsolete. But, in fact, NATO has provided a zone of stability
for Western Europe for 40 years, and all 16 members have reaffirmed
the importance of the Alliance. Indeed, NATO has received requests from
new nations wishing to join,to be a part of this zone of stability.

NATO's Partnership
for Peace (PFP) program is already extending a zone of stability eastward
across Europe and Central Asia by promoting military cooperation among
NATO countries, former members of the Warsaw Pact, and other countries
in the region. This cooperation takes place at many levels, from frequent
meetings between Defense Ministers to officer exchanges at schools and
planning headquarters. The highlight of PFP, though, is the joint exercise
program, focusing on peacekeeping training. In August 1995, the United
States hosted one of these exercises, Cooperative Nugget, at Fort Polk,
Louisiana. Such exercises have had a remarkable effect on European security
by building confidence, promoting transparency, and reducing tensions
among nations that have, in many cases, been at odds for long periods
of Europe's history. PFP is also the pathway to NATO membership for
those Partners that wish to join the Alliance.

In fact, the positive
effects of PFP resonate far beyond the security sphere. Since political
and economic reforms are a prerequisite to participation in PFP or membership
in NATO, many Partner nations have accelerated such changes. In addition,
many Partner nations are starting to see value in actual PFP activities,
irrespective of whether they lead to NATO membership. The lessons learned
and values fostered through the program are intrinsically useful.

PFP is one of the
most significant institutions of the post-Cold War era. Like the Marshall
Plan in the 1940s, PFP today is creating a network of people and institutions
across all of Europe working together to preserve freedom,promote democracy
and free markets, and cooperate internationally -- all of which are
critical to expanding the zone of stability in Europe in our day.

It is critical
that this zone of stability in Europe include Russia. Key to this is
Russia's active membership in PFP, NATO's development of a special security
relationship with Russia, and Russia's integral involvement in broader
European security issues, as in Bosnia and Herzegovina. Open, productive
security relations with Russia are an essential element of our approach
to advancing security in Europe and ultimately limiting the potential
for conflict. Recognizing that Russia remains a major world power with
global interests and a large nuclear arsenal, the United States seeks
a pragmatic partnership with Russia whereby we pursue areas of agreement
and seek to reduce tensions and misunderstandings in areas where we
disagree. Our successful efforts to include a Russian brigade in the
U.S. sector of the NATO-led peace implementation force in Bosnia and
Herzegovina readily reflect this partnership.

In addition to
cooperative threat reduction efforts, such as the Nunn-Lugar program,
we also seek to foster greater openness in the Russian defense establishment
and to encourage Russia to participate in global nonproliferation activities
and regional confidence building measures, by participating in the U.S.-Russian
Commission on Economic and Technological Cooperation. The Commission,
established by Vice President Gore and Prime Minister Chernomyrdin in
1993, seeks to build confidence by forging a better economic relationship
between the United States and Russia. The Defense Department is part
of an interagency effort sponsored by the Commission focused on finding,
facilitating, and helping finance investments in the region by American
business enterprises, targeting a wide range of opportunities -- from

defense conversion
to space exploration to prefabricated housing. The Commission's activities
benefit Russia's attempts to achieve a market economy,benefit American
companies, and benefit American security interests -- a triple win!

Asia-Pacific

In the Pacific,
the United States and Japan have entered into a new era in our regional
relationship, as well as in our global partnership. A stronger U.S.-Japanese
alliance will continue to provide a safe environment for regional peace
and prosperity. Our alliance with South Korea not only serves to deter
war on the peninsula, but also is key to stability in the region. These
security alliances and the American military presence in the Western
Pacific preserve security in the region, and are a principal factor
in dampening a regional arms race.

We are also fully
participating in multilateral security dialogues, such as the Association
of Southeast Asian Nations (ASEAN) Regional Forum, which help reduce
tensions and build confidence so that tough problems like the territorial
dispute over the Spratly Islands in the South China Sea can be resolved
peaceably.

Central to our
efforts to prevent conflict in the Asia-Pacific region is our policy
of comprehensive engagement with China, a major power with a nuclear
capability. The United States will not ignore China's record on human
rights,political repression, or its sale and testing of dangerous weapons,
but we also will not try to isolate China over these issues. We want
to see China become a responsible, positive participant in the international
arena, and the best way to encourage this is to maintain a vigorous
dialogue over a wide range of issues -- including security issues --
so that we can pursue areas of common interests and reduce tensions.

In South Asia,
the United States has restarted a bilateral security relationship with
Pakistan and begun a new security dialogue with India. These ongoing
dialogues can help all three countries focus on areas of common interest,
such as international peacekeeping, and could in time provide the confidence
necessary to address more difficult problems, such as nuclear proliferation
and the long-simmering conflict over Kashmir.

The Americas

In our own hemisphere,
we are witnessing a new era of peace, stability, and security. From
Point Barrow to Tierra del Fuego, all 34 nations except Cuba have chosen
democracy, and economic and political reforms are sweeping the region.
This historic development paved the way for the first Defense Ministerial
of the Americas last summer, at which delegations from all 34 democracies
gathered in Williamsburg, Virginia, to consider ways to build more trust,
confidence, and cooperation on security issues throughout the region.
Following on the success and progress at Williamsburg, the nations of
this hemisphere already are planning for the second Defense Ministerial
in Argentina in the fall of 1996.

Like the Partnership
for Peace in Europe, the Defense Ministerial of the Americas provides
an opportunity to build a zone of stability in a region once destabilized
by Cold War tensions. In the Americas, as in Europe, the tools for building
stability include joint training and education programs that promote
professional, civilian-controlled militaries as well as personal interactions;
information sharing on national military plans, policies, and budgets;
and confidence-building measures. In Europe, these activities are led
by the United States and NATO. In the Americas, they are emerging by
consensus and encouraged by the United States. But ultimately, the result
is the same:more democracy, more cooperation, more peace, and more security
for the United States.

Regional Preventive
Defense Efforts

In each of the
regions discussed, the United States has military-to-military relationships
and is conducting joint exercises with a much wider range of countries
than ever before. These activities promote trust and enable forces from
different countries to operate together more effectively, which is essential
given the increasing prevalence of combined operations. In the Gulf
War, for example, some 40 countries made military contributions. Nearly
three dozen countries are participating in the peacekeeping force in
Bosnia and Herzegovina, including many non-NATO countries.

Another important
part of preventive defense is our effort to promote democratic civil-military
relations. One such program, conducted jointly with the State Department,
is the International Military Education and Training program, which
has now trained half a million foreign officers in the fundamentals
of civil-military relations over the last several decades. Similarly,
recently established regional training and study centers like the Marshall
Center in Germany and the Asia-Pacific Center for Security in Hawaii
are designed to promote contacts between regional military officers
and civilian defense officials and to foster the principles of civilian
control of the military.

Protecting the Readiness
of Our Forces -- Near- and Medium-Term

No security strategy
is better than the forces that carry it out. Today, the United States
has forces that are well-trained, well-equipped and, most of all,ready
to fight, as their performance over the past year in the Persian Gulf,Haiti,
and Bosnia and Herzegovina illustrates. The Department has maintained
this readiness in spite of a drawdown of historic proportions. Drawdowns
create turbulence in the force, which historically has undermined readiness.
Recognizing this history, we have taken unprecedented steps to maintain
readiness while reducing our forces in the wake of the Cold War. By
the end of 1996, the drawdown will be nearly complete, which means an
end to the turbulence. In the meantime, though, the Department continues
to maintain near-term readiness at historically high levels through
robust funding of the Operation and Maintenance (O&M) accounts. This
remains the Department's top budget priority. Manifesting this priority,the
Department's FY 1995 and FY 1996 budgets and the FY 1997 budget request
are at historically high levels of O&M funding (normalized to force
size).

Medium-term readiness
depends on attracting top quality people and retaining them after they
have developed technical and leadership skills. To do so, we must offer
not only challenging and rewarding work, but also an appropriate quality
of life, a term used to encompass the entire package of compensation
and benefits, as well as the work and living environment for military
service personnel. Protecting quality of life is not only the right
thing to do for the men and women who serve and sacrifice for their
country, it is also critical to preserving medium-term readiness.

Last year, President
Clinton approved an increase in defense spending of $25 billion over
six years largely aimed at improving the quality of military life. This
includes a commitment to ensure that military personnel receive the
full pay raise authorized by law through the end of the century. It
is also directed at extensive improvements in military quality of life
programs,including housing -- a key concern to service families. This
past year, a distinguished panel, led by former Army Secretary John
Marsh, looked beyond existing DoD efforts to identify quality of life
problems and suggest high-leverage, affordable solutions. The panel
concentrated on three major areas: housing, personnel tempo, and community
and family services. Action on the panel's recommendations is being
incorporated into the Department's overall effort to preserve quality
of life.

Modernization --
The Key to Long-Term Readiness

To ensure military
readiness in the long term requires the Department to modernize the
armed forces with new systems and upgrades to existing systems to maintain
America's technological advantage on the battlefield. For the past five
years, the Department has taken advantage of the drawdown and slowed
modernization in order to fully fund those expenditures that guarantee
near-term readiness -- spare parts, training, and maintenance. As a
result,the modernization account in FY 1997 will be the lowest it has
been in many years, about one-third of what it was in FY 1985. At the
same time, the average age of our military equipment has not increased,
because as the forces were drawn down, the older equipment was weeded
out. But now that the drawdown is nearly over, the modernization reprieve
from aging is nearly over, too.

So, beginning in
FY 1997, the Department is planning a modernization ramp-up,which will
be critical to the readiness of the forces in the next century. By the
year 2001, funding to procure equipment to modernize our forces will
increase to $60.1 billion in current dollars -- over 40 percent higher
than what it is in the FY 1997 budget. This five-year plan will focus
on building a ready, flexible, and responsive force for a changing security
environment. The force will continue to maintain our technological superiority
on the battlefield by seizing on the advances in information-age technology,
such as advanced sensors, computers,and communication systems. At the
same time, the modernization program will focus on bread and butter
needs, such as airlift and sealift, and the everyday equipment ground
forces need in the field, such as tactical communications gear, trucks,
and armored personnel carriers.

This five-year
modernization plan is based on three assumptions. First, that the defense
budget topline will stop its decline in FY 1997 and begin to rise again
(as proposed in the President's five-year budget). Second, that the
Department will achieve significant savings from infrastructure reductions,most
importantly from base closings. The third assumption of our modernization
program is that the Department will achieve significant savings by outsourcing
many support activities and overhauling the defense acquisition system.

Base Realignment
and Closure (BRAC)

The Base Realignment
and Closure process is directly linked to modernization and long-term
readiness. As we downsize the military force, we must also reduce our
Cold War infrastructure. Our efforts to manage this process have been
aimed at saving money while ensuring that troops have the training and
equipment they need to be ready in the future. While the Department
has made significant progress in base closings, many BRAC recommendations
have not yet been implemented, and an imbalance between force structure
and infrastructure remains.

Until we fully
execute the BRAC process, money will be tied up in nonperforming real
estate, draining funds from our modernization efforts and other programs.
While base closing initially costs money -- the FY 1996 budget included
$4 billion allocated to base closing costs -- there will be significant
savings in the future. In the FY 1999 budget, the Department projects
$6 billion in savings from closing the bases, thus allowing a $10 billion
swing in savings. These and future savings from base closing will be
devoted to modernization.

Completing the
BRAC process quickly is not only key to saving money, it also is the
right thing to do for the communities involved. The Department is helping
these communities find imaginative ways to put the excess defense property
to productive use as quickly as possible. When base closure is done
right, it can leave communities better off, with a more diverse economy
and more jobs. The key is early community involvement and planning.
For example,when Louisiana's England Air Force Base was slated for closure,
the Alexandria Chamber of Commerce worked with the Air Force to develop
a base reuse plan. Months before the base did close, small business
enterprises had already signed leases, resulting today in hundreds of
new jobs for Alexandria.

Acquisition Reform
and Privatization

Over the past two
years, the Department has undertaken the most revolutionary changes
in its acquisition system in 50 years, and is looking for ways to further
reform the system through privatization.

Acquisition Reform

First, the Department
discarded the system of military specifications, or MilSpecs, which
spelled out how contractors must design and produce military systems,
supplies, and services. In

its place, the Department
will use commercial and performance standards. These will call for the
highest quality standards available in the commercial market or, if
there are no relevant commercial standards, will use functional specifications
which describe how the equipment is to perform -- and challenge suppliers
to meet that standard any way they want.

The second major
change in the defense acquisition system began on October 1,1995, when
the new federal acquisition streamlining regulations were published.
These regulations, in effect, will allow the Defense Department to buy
from the commercial marketplace more often, and buy more like commercial
firms do.

Defense acquisition
reform is important not only because it will help pay for the defense
modernization program, but also because of a phenomenon called technology
pull. This phrase describes the demand for advanced technology to give
the United States battlefield superiority. Technology pull has its roots
in the U.S. military experience in Operation Desert Storm. Before Operation
Desert Storm, many U.S. military commanders and outside experts were
skeptical of advanced technology applied to combat. For example, they
questioned the concept of the Reconnaissance Strike Forces, developed
in the 1970s and deployed in the 1980s. This concept combined stealth
aircraft,precision-guided munitions, and advanced surveillance technology
to offset superior numbers of Soviet forces. But there was great concern
that such advanced technology was too delicate, or that it would not
work in the fog of war. But in Operation Desert Storm, the same Reconnaissance
Strike Forces crushed the Iraqi military force with very low U.S. losses.
Skeptics became believers. Advanced technology proved itself, and military
commanders are finding myriad uses for it -- not just smart weapons,
but also smart logistics,smart intelligence, and smart communications.
Military commanders are revising their doctrine and tactics to take
advantage of this technology, and they want to pull it faster into their
war planning.

The key technology
they want is information technology, and it is being developed at a
breathtaking pace, but not by the Defense Department. It is being developed
by commercial computer and telecommunications companies,dual-use (defense-commercial)
technology firms, and small high-tech businesses and universities. The
Department cannot pull this technology from these sources without acquisition
reform, because the current system limits access to these sources either
directly, by throwing up regulatory barriers, or indirectly, by slowing
the ability to purchase and employ new generations of technology in
a timely way.

Privatization

The Department
not only needs to do more business with commercial industry, it also
needs to act more like commercial industry.

There are numerous
examples of private sector companies turning to outside suppliers for
a wide variety of specific, non-core goods and services. By focusing
on core competencies, they have reduced their costs by lowering overhead
and improved their performance.

Major opportunities
exist for the Department to operate more efficiently and effectively
by turning over to the private sector many non-core activities. For
example, private sector companies are already under contract to perform
some commercial activities on bases around the world. This type of outsourcing
can be expanded.

To implement this
strategy, the Department has been systematically examining opportunities
for privatizing, as well as reviewing both institutional and statutory
obstacles to its full utilization. Early in 1996, work groups engaged
in these efforts will provide reports on how privatization can be better
used to lower DoD costs while enhancing its effectiveness.

CONCLUSION

In the uncertainty
that has followed the Cold War, the United States has not only the opportunity,
but also the responsibility to help ensure a safer world for generations
of Americans. President Clinton has said: "As the world's greatest power,
we have an obligation to lead and, at times when our interests and our
values are sufficiently at stake, to act."

The Department
of Defense is supporting American leadership in this new era. As the
Department completes the transition to a post-Cold War military force,it
has undertaken policies and programs to prevent threats to our security
from emerging and to maintain well-trained, ready forces able to deter
or respond quickly to a range of potential threats and seize opportunities.

The world has changed
dramatically over the past few years, but one thing remains constant:
a strong military force, made up of the finest American men and women,
is the nation's best insurance policy. Each element of the defense program
described in this report supports this fundamental, indisputable fact.